Getting a first mortgage is a major event in a person's life. With a mortgage, you magically go from being a renter to being the owner of the property.
People used to think of getting a mortgage as a battle, a competition where the only winners were those who sold headache pills and tonnes of paper. But now it's faster and easier than ever to find the right mortgage, but only if you know how to make the system work for you.
Even ten years ago, getting a loan was a lot harder than it is now.
Getting a credit report used to take days or even weeks. At the same time, a mortgage lender couldn't act on a loan application because information about debts and credit history was missing. This has greatly shortened the time it takes to process a loan.
In 1995, both Fannie Mae and Freddie Mac said that local lenders should use the credit scoring system created by Fair Isaac, a leader in the industry, to evaluate the credit of consumers. Credit scoring uses a strict mathematical profile made up of a huge number of credit reports to measure a person's credit history and predict how they will use credit in the future. Credit scoring helps people who want to borrow money because it looks at how credit is used, not how much money is made. Rich people can have low credit scores, and poor people can have high credit scores. In practise, your rate goes down as your score goes up.
Many mortgage loan programmes no longer require income and employment verifications, which is the physical process of confirming wages and jobs.
A growing number of loan programmes do not require individual appraisals. Instead, lenders can use automated valuation systems based on tax records and past sales to show how much many properties are worth. Automated appraisals are faster and cheaper when they are available, but they aren't always available.
The process of underwriting has been made easier by using computers. Most of the time, a decision on a conditional loan can be made within an hour of getting an application.
Online lending is now a thing. People used to be told that the best way to find the best loan was to check with three or four lenders. Now, it's possible to compare a huge number of lenders in just a few minutes. Because of this, mortgage lending has become more competitive, which is good for people who want to get one.
Even though computers and electronic devices are becoming more common, borrowers still have to do their part.
Your main job is to make sure that the information on the application is full and correct. If there are mistakes on the application, you could suddenly have to pay a lot more for your mortgage.
Your lender will give you an initial loan application that lists your income, assets, debts, and how much you need to pay each month. A lot of the application is made electronically based on information from credit reporting agencies. Before you sign anything, you should go through the application line by line to make sure all the information is correct and up to date.
Since you know the lender will send you an application, you can speed up the underwriting process by getting your financial information ready ahead of time.
First, make a list of everything you own. You want to show the balances or fair market values of all IRAs, stocks, bonds, mutual funds, checking accounts, real estate, pensions, cars, and other major assets. You should also write down account numbers and how to reach you.
Second, write down all of your debts. You want to include all credit cards, car loans, student loans, mortgages, etc. Show account numbers and contact information for each liability, just like you did for each asset. Also, make sure to list how much each debt needs to be paid each month.
You now have a useful tool for making plans for your money. It tells you what you own, what you owe, and how much you're worth (your net worth is your assets minus your debts). This is good information to keep with wills and living wills because it has account numbers, contact information, and other things. Also, it's easy to keep this information up to date if you put it on a spreadsheet.
Many loan programmes no longer ask for proof of income or employment, but you should still keep a file with things like your last two or three pay stubs from the time you applied for the loan and copies of your tax returns from the past few years. Also keep track of information about other ways to make money, like interest, dividends, profit-sharing, etc.
You now have a way to quickly fill out a loan application and a way to make sure that the lender isn't making decisions based on information that is out of date or wrong.
